Frutarom sales grow again, profit recovery expected

Israel-based Frutarom has seen continual growth in sales over the last seven years. Its latest set of results for full year 2007, released today, indicate an ambitious company that continues to building up capabilities in the markets in which it is active - flavours and fine ingredients. For the year ended December 31 2007, it reported sales of US$368.7m - up 34 per cent on the prior year. Its net income for the year was $24.2m, compared to $29.7 in 2006. This latter drop was explained in part by the acquisitions that came at towards the end of the year, which had not yet had a chance to contribute positively to results, and the one time expenses of $2m Frutarom paid out to integrate its new business. "The 2007 results were influenced by the acquisitions, which contributed to the growth in sales but as expected temporarily reduced profitability,"​ said president and CEO Ori Yehudai. He added, however, that the acquisitions will contribute from Q1 2008 to profits as well as sales, and to improving margins. His positive bent seems to have grounds: on a proforma basis - that is, assuming the acquisitions were all made as of January 1 2007 - sales were $431.5m. ​The magnificent seven ​ Frutarom made its first buy of 2007 in March - UK flavours firm Belmay for US$17.1m (c €12.8m). This was followed less than a month later with the acquisition of Jupiter - another UK flavour firm - for US$2.8m (€2m). In June, it signed an agreement to acquire fellow Israeli firm Raychan Food Industries for a consideration of US$1.05m, plus assumption of debt (minus working capital) of $1.23m. Next up, in July, it bought US ingredients maker Abaco for $4mn (€2.9mn) and also assumed its debt of $1.1mn (€0.8mn). In the same month Frutarom finalised its purchase of Adumim​, also for $4mn (€2.9mn), to help boost its development and production of medicinal plant extracts, vitamins and minerals for foods. In October it announced an agreement to acquire German-based Gewurzmuller Group for $67m (€47m) to further expand in the global market for flavours and functional ingredients. Finally, in November, Frutarom snapped up Israeli's RAD Natural Technologies. RAD specialises in the research, development, production and sale of anti-oxidant plant extracts, and adds to Frutarom's growing weight in the taste and health arena. ​The company aims to achieve the greatest commercial and operational synergy possible from its acquisitions. Yehudai also indicated that more acquisitions may be on the cards. He said the company "invests considerable resources in identifying and executing additional strategic acquisitions"​. ​Raw materials ​​As with all food companies in the present climate of high commodity prices, Frutarom saw some impact on its profitability from raw material costs. Yehudai called the business environment last year "challenging"​, and said that it was the natural raw materials, which make up the bulk of what Frutarom uses, that had the most impact. "We will continue to act resolutely to improve margins by raising the selling prices of our products to adjust them to the ongoing rise in raw material prices​," he said.